Squeeze patterns: price moves in an ever narrower range until it knocks out one of the boundaries. Here are ascending, descending and symmetrical triangles, wedges, and which way they tend to break.
A flat bottom and falling highs. Breaks down more often.
Symmetrical
Both boundaries converge. The breakout direction is open.
Wedge
Both lines slope the same way and converge. A falling wedge more often breaks up, a rising wedge down.
Triangles
A triangle is a squeeze. Each swing is shorter than the last, volatility drops and energy builds up. The shape hints at who's stronger.
In an ascending triangle sellers hold one level above while buyers step in higher each time. Pressure on the level grows, and most often it gives way.
Flat resistance and rising lows. Buyers step in earlier and earlier on pullbacks — and break the top. Illustrative data.
In a descending triangle it's the mirror image: buyers hold a level below, sellers sell lower and lower, and support usually gives way.
Flat support and lower highs — a breakdown. Illustrative data.
In a symmetrical triangle both sides give ground equally, so only the breakout sets the direction. It more often comes in the direction of the prior trend.
The boundaries converge symmetrically, and the breakout up set the direction. Illustrative data.
Wedges
In a wedge both lines slope the same way. A falling wedge: price falls, but each new drop is weaker and the lines converge. Sellers run out of steam, and the breakout more often comes upward. A rising wedge is the opposite: the rally slows and the breakout more often comes downward.
A falling wedge: the decline slows, the lines converge — and price breaks out upward. Illustrative data.A rising wedge: each rally is weaker than the last, the lines converge — and price breaks the lower boundary. Illustrative data.
How to trade them
01
At least two touches of each boundary
Otherwise it's not a pattern, just two random lines.
02
Wait for a breakout with a close
Inside the pattern the direction isn't set.
03
The best breakouts come closer to the apex
But not at the apex itself: there the pattern often fizzles into a range.
04
Stop beyond the opposite boundary or the last swing
Inside the pattern.
05
Target the height of the pattern's base
Projected from the breakout point.
"More often breaks up" is a probability, not a rule. Trade the breakout as it happens, not the expectation. A false break of one boundary often leads to a strong move the other way.
Common mistakes
Guessing the direction
Entering inside a triangle before the breakout is a coin flip with a poor stop.
Drawing the pattern from two points
Two points make a line, not a pattern.
Ignoring context
An ascending triangle in a strong downtrend breaks down more often than the textbook promises.
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